Canadian banks, which only last month expected the Bank of Canada to resume tightening this fall, are pushing rate hike forecasts into next year following some of the worst financial market turmoil since 2008. RBC Capital Markets and BMO Capital Markets, both Canadian primary dealers, confirmed on Friday that they now see interest rates on hold until the second quarter next year.
They join TD Securities and Scotia Capital, who were early movers on seeing rate hikes in 2012 based on the deteriorating global economic and fiscal conditions. Other forecasters have also indicated their economic outlooks are under review.
"We just think that given the fact that inflation has receded, and the disappointing US recovery and the fact that this financial market turmoil will likely hit growth temporarily, we just don't see the bank moving this year," said Doug Porter, deputy chief economist at BMO Capital Markets. Just three weeks ago, traders were pricing in higher odds of a rate increase this year, following unexpectedly hawkish language from the Bank of Canada.
A July 20 survey of primary dealers, institutions that deal directly with the central bank as it carries out monetary policy, showed most saw a rate hike in September or October. The swings in the market, mixed economic data, and the twin debt crises in Europe and the United States were all factors behind changing forecasts.